Riley: Leaders Silent on “Enron-esque” Providence Pension Debacle
Tuesday, May 12, 2015
A recent article by Jane Fusco at GoLocalProv was aptly titled ‘ City Council, Unions not concerned about $62 million missing from Providence Pension Fund’ So after denying that assets were overstated since 2013 Taveras and Ortiz were predictably unavailable for comment. One might expect the Fire Union chief to be concerned their Pension Fund was missing at least $62 million but quoting Paul Doughty, president of the Providence Firefighters Union, he calmly stated that “this is more of a case an accounting practice that will not affect union members.”
“It’s probably not the smoking gun that it appears to be,” Doughty said. He added that Riley’s article is technically correct, but there is an understanding that the money will be there in a few months, and the books will balance. History has proven that, he said.
Doughty said that the current accounting process does not correctly represent the contribution, and may be unorthodox, but there is no real loss to the pension fund, and the auditors understand this method. Councilman Kevin Jackson pitched in;
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST"I think that it has to do with the new way it's being looked at. I believe they thought they were doing it the right way before," said Councilman Kevin Jackson.
So that was their reaction last week. What a reasonable man this Paul Doughty. He seems very restrained. So who was the Paul Doughty that in 2013 that said, referring to pension officials in Rolling Stone Magazine:
“...its an endless system of highly paid middlemen reminds him of old slapstick comedies. "It's like the Three Stooges," he says. "When you ask them what happened, they're all pointing in different directions, like, 'He did it!'" Doughty continued “Once upon a time, local corruption was easy. "It was votes for jobs," Doughty says with a sigh. A ward would turn out for a councilman, the councilman would come back with jobs from city-budget contracts – that was the deal. What's going on with public pensions is a more confusing modern version of that local graft. With public budgets carefully scrutinized by everyone from the press to regulators, the black box of pension funds makes it the only public treasure left that's easy to steal. Politicians quietly borrow millions from these funds by not paying their ARCs, and it's that money, plus the savings from cuts made to worker benefits in the name of "emergency" pension reform that pays for an apparently endless regime of corporate tax breaks and handouts.”
Was that the same Paul Doughty that now in 2015 doesn’t even ask how $62 Million could have disappeared? He just accepts it as though he knew already. That’s pretty odd. But he’s not the only Providence official who is acting strangely. Consider the 2011 reform and the comments from David Ortiz and Mayor Taveras in 2013 who sued Buck Consultants and ended the 90year relationship between Buck and Providence. Ortiz and Taveras were hopping mad over a $700,000 dollar “error” and then sued Buck. I guess a $100,000,000 million dollar asset fraud isn’t quite as important as a $700,000 dollar error.
Here’s what Ortiz and Taveras said in 2013 over the Buck Consultants “error”.
“Providence, R.I., on Tuesday filed a lawsuit against Buck Consultants, its longtime pension actuary, confirmed David Ortiz, spokesman for Providence Mayor Angel Taveras.
The lawsuit accuses Buck of miscalculating $700,000 of savings the city expected this year through pension reform. “When compounded annually over the next 28 years, the error amounts to $10.8 million in today's dollars,” Mr. Taveras said in a statement.
The city alleges breach of contract, breach of fiduciary duty, negligence and violation of the Rhode Island False Claims Act. The lawsuit claims Buck admitted the mistakes and said it had made other undisclosed calculation errors that accounted for the lost savings.
The Providence Employees' Retirement System had $422 million in assets and $1.325 billion in liabilities as of June 30 for a funded status of 31.85%.
“For the past two years, the city has relied on Buck's calculations to guide our pension reform efforts,” Mr. Taveras said in his statement. “We did not discover Buck's error until late December, after we had already reached a settlement with our unions and retirees. We will not alter the settlement or seek future concessions from Providence's employees and retirees to achieve the lost $10 million.”
Some people are skeptical of RI Government to begin with. They should be even more so when hearing last week City council members and Union heads responding in lock step regarding the revelation of Missing Pension funds. Virtually no official in Providence has expressed concern. Not the current Mayor Elorza or the former Mayor Taveras or David Ortiz or Lawrence Manicini. Does it makes sense that Union Head Doughty is a true believer in Providence accounting and as a member of the pension Crisis Commission over the last 3 years he saw no irregularities in Providence ‘s Pension Plan ?
More from Taveras and Ortiz 2013:
Providence, R.I., on Tuesday filed a lawsuit against Buck Consultants, its longtime pension actuary, confirmed David Ortiz, spokesman for Providence Mayor Angel Taveras.
The lawsuit accuses Buck of miscalculating $700,000 of savings the city expected this year through pension reform. “When compounded annually over the next 28 years, the error amounts to $10.8 million in today's dollars,” Mr. Taveras said in a statement.
The city alleges breach of contract, breach of fiduciary duty, negligence and violation of the Rhode Island False Claims Act. The lawsuit claims Buck admitted the mistakes and said it had made other undisclosed calculation errors that accounted for the lost savings.
The Providence Employees' Retirement System had $422 million in assets and $1.325 billion in liabilities as of June 30 for a funded status of 31.85%.
The city requested and obtained several analyses from Buck on how the city could achieve savings through changes to its pension system. Buck projected how much the city would save by freezing pension increases for 10 years, and Mr. Taveras used the assumptions in negotiations, according to the lawsuit filed in U.S. District Court in Providence. The lawsuit claims Buck failed to account for an entire year of cost-of-living adjustment payments, causing the numbers Buck was using to calculate the actuarially required contribution and its expected liabilities to be “wholly incorrect.”
“For the past two years, the city has relied on Buck's calculations to guide our pension reform efforts,” Mr. Taveras said in his statement. “We did not discover Buck's error until late December, after we had already reached a settlement with our unions and retirees. We will not alter the settlement or seek future concessions from Providence's employees and retirees to achieve the lost $10 million.
"The city relied upon Buck's projections as the basis for its final resolution with the retirees and unions regarding COLA suspensions," the lawsuit says. "Had the city known that Buck's calculations were simply wrong, the city would never have agreed with its union employees and retirees to the pension modifications to which it is now bound."
The suit says Buck overstated the city's savings by $700,000 a year, meaning its pension liability is $10.8 million more than it expected, when spread out over 28 years.
David Ortiz, a spokesman for Taveras, said the city is seeking $10.8 million in damages. The mayor said the city would not alter the settlement it reached with the unions and retirees or seek future concessions to make up for the loss in expected savings.
"Buck's mistake is inexcusable, and I will not allow Providence residents to pay for their mistake," Taveras said. "Buck needs to make the city whole and we believe that after trial a jury will agree with the city."
Parts of the Providence vs Buck Consulting case have been thrown out, but a case is still pending.
What does Mayor Elorza have to Say?
Unfortunately he hasn’t said a word about the missing pension money since April 28 when Segal disallowed $62 million in claimed Pension assets. This Segal action confirmed my thesis that the assets never existed and the jig is up now for some officials and their “Enron” accounting.
Here is what candidate Elorza said in 2014:
Said Elorza: “We have a commitment to both our retirees and our children that must be honored, and it is equally important that we pay our bills and not lose sight of current responsibilities. The unfunded liability is down $70 million. As Mayor, I will accomplish both and continue to decrease that number by focusing on revitalizing our economy and continuing to look for savings to ensure our city can fulfill its obligation to both its retirees and residents.”
It is pretty clear that several Providence Mayors and officials have been misleading and covering up Pension asset theft for several years now in violation of municipal disclosure laws. Ironically, Matt Taibi articulated well the issue in his 2013 rant against Gina Raimondo.
Rolling Stone author is wise to the games
According to the Matt Taibi 2013 article, this is how unions and pols work together.
“There's an arcane but highly disturbing twist to the practice of not paying required contributions into pension funds: The states that engage in this activity may also be committing securities fraud. Why? Because if a city or state hasn't been making its required contributions, and this hasn't been made plain to the ratings agencies, then that same city or state is actually concealing what in effect are massive secret loans and is actually far more broke than it is representing to investors when it goes out into the world and borrows money by issuing bonds.”
Since no Rhode Island or Providence official including the Governor and State Treasurer seems concerned about pension beneficiaries and taxpayer theft of close to $100 million dollars, I intend to prove “step by step” that felonies were committed.
Next week a schematic of the Pension Scam “Enron style”, also a Dissection of the Municipal Pension Commission and a conversation with the MSRB.
Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity, and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC News, Yahoo TV, and CNBC.
Related Slideshow: Timeline - Rhode Island Pension Reform
GoLocalProv breaks down the sequence of events that have played out during Rhode Island's State Employee Pension Fund reform.
Related Articles
- Riley: Providence Misleads Investors, Risks SEC Scrutiny
- Riley: Pension Returns Lag
- Riley: Providence Needs Full Economic Review
- Riley: RI Pension Study Commission Boondoggle
- Riley: Japonica, A Mystery to Rhode Islanders
- Riley: The Strategy of RI Politics
- Michael Riley: Trust Chafee? I Don’t Think So
- Riley: The Plans of RhodeMap RI May Scare People
- Riley: RhodeMap RI is Deeply Flawed
- Michael Riley: A Personal Plea
- Michael Riley: Rhode Island Leaders Only Need to Focus on Two Things
- Riley: Mr. Magaziner, No More Spin - Just the Facts
- Riley: Why Aren’t Rhode Island Pension Plans Working?
- Riley: Pension Settlement Does Little to Help Rhode Island
- Riley: Progressive Magaziner and the Discount Rate
- Riley: Repeating My Call for Providence Bankruptcy
- Riley: How to Start Fixing the Rhode Island State Pension Fund
- Riley: Providence Pension Scam is Unraveling
- Riley: Negative Return on Fiscal Year 2015
- Riley: Does the RI Treasurer Know his Senior Policy Adviser?
- Riley: How Does Providence Arrive at 8.25% Discount Rate for Pensions?
- Riley: Institutional Investor Gives Bad Grades to RI’s Hedge Fund Picks
- Riley: Providence Pension Fund is Risky Business
- Riley: RI Has $600 Million Shortfall for Fiscal Year 2015
- Riley: Providence Pension Scam Revealed in Print
